Business Valuation of Polo Ralph Lauren Corporation - Mark Moore ...

occurred because their Book Value and Price were so closely related. (Note: The BookValues and Prices relate to the Most recent quarter, with results found inhttp://finance.yahoo.com.Intrinsic Valuation MethodsIn order to perform the following valuations, we must first calculate the WeightedAverage Cost of Capital (WACC), where we will find our cost of capital (Ke) and cost ofdebt (Kd). The cost of capital was found by first calculating the beta. We used theFirm’s Return and the Market Risk Premium from the last two years. By using the slopeof these two we calculated the beta to be 0.742. To take into consideration, the 5 yearbeta is 0.469, and the 3 year beta is 0.483. We decided to use the 2 year beta to calculatethe cost of capital. Then from the CAPM data, we calculated the Average risk free rate tobe 3.22%. Then, to determine the cost of capital, we multiplied the historical beta of 0.03and the beta estimated of 0.742, then we added these results to the average risk free rateof 3.22%. The cost of capital determined is 5.44% for 2 years, 4.66% for 3 years, and4.62% for 5 years. We decided to use the cost of capital for 2 years, of 5.44%. The costof debt was calculated using the table shown below.Short Term Liabilities(in millions) Principal Rate WeightValueWeightedRateAccounts Payable $187,355 2.82% 16.42% 0.46%Income Tax Payable $77,736 0.00% 6.81% 0.00%Deferred Income Taxes $1,821 0.00% 0.16% 0.00%Euro commercial paper $292,600 2.82% 25.65% 0.72%Accrued Expenses and Other $234,218 2.82% 20.53% 0.58%Total Current Liabilities $793,730 69.58% 1.77%Long Term Debt 277,345 6.125% 24.31% 1.489%Other (retirement Plans) 69,693 7.000% 6.11% 0.428%Total Debt 1,140,768 100.00% 3.68%Weighted Avg Kd 3.68%32